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HSBC: Significant Global Trade Growth Ahead

Robust economic growth in the U.S. and United Kingdom, combined with a gradual recovery in the Eurozone, should help strengthen global economic activity over the next year, according to the latest HSBC Trade Confidence Index. However, rising geopolitical tensions could weaken such projections.

Such issues aside and the near-term challenges facing emerging markets, longer-term development patterns in both Eastern Europe and the Middle East likely will be important drivers of global economic and trade growth over the coming decades, HSBC noted in its index overview.

To produce the trade-confidence index, TNS, on behalf of HSBC, surveyed between May and July this year some 5,200 exporters, importers and traders from small and midsize enterprises in 23 markets.

Growth ahead

After sluggish growth in 2012 and 2013, HSBC projects global growth in the value of traded goods to regain its momentum, growing to about 8 percent annually by 2016 from 2.5 percent in 2013 among the 25 economies in its trade forecast. Of the six economies projected to see the fastest export growth, five are from emerging Asia, with average growth of 8 percent to 11 percent annually between 2014 and 2030, HSBC said.

Confidence regarding near-term trade prospects among businesses globally were mixed, “with an upturn in sentiment across much of Asia contrasting with a moderation in confidence levels in North and Latin America,” HSBC said.  The most marked improvements were in emerging Asia, especially Bangladesh, India and Indonesia. But there were also large gains in Turkey and Egypt, which rebounded in light of a more settled local economic climate, the multinational banking and financial-services company said.

"Nevertheless, we also need to acknowledge that the rapidly evolving geo-political situation may have negatively affected sentiment since the survey was conducted in May to July 2014,” the company said.

An increase of demand in key markets was the main reason cited among survey respondents for the improved trade outlook. However, fewer businesses than in previous surveys cited an improvement in overall global demand as a determining factor, possibly because of concerns over a near-term slowdown in growth in emerging markets, HSBC said, noting the number of businesses securing a rise in large orders increased.

Top sector beneficiaries

As the global economy recovers, such cyclical sectors as transport equipment and metals likely will be among the top beneficiaries of the upturn, HSBC said.

"Over the longer term, however, we expect machinery and transport (including cars) to be the fastest-growing sector,” it noted, projecting the sectors to grow by about 8 percent annually through 2030. “Despite rising interest in global energy issues, growth in trade in mineral fuels is forecast to expand by a relatively modest 6 percent a year, and account for less than 8 percent of the increase in overall goods trade."

Among all respondents, nearly 42% saw Asia as having the best opportunity for business growth in the next six months, virtually unchanged from the previous survey. “The proportion of respondents that saw Europe and North America as having the best prospects for business expansion increased slightly from before, reflecting the recovery in economic conditions in these regions,” HSBC said.

Currency-use trends

The U.S. dollar was cited as the main trade-settlement currency by 64 percent of respondents, followed by the euro at 20 percent. Use of China’s renminbi was still comparatively minor, but it was the most popular emerging-market currency, HSBC said.

In a recent, separate global survey of international business decision-makers in 11 countries, including 102 in the U.S., HSBC found German and French companies were using renminbi to trade. More U.S. businesses also were, and more planned to use the Chinese currency amid expectations by business leaders that their trade with China could increase in the next 12 months, HSBC said in July.

In HSBC’s current view, global growth is set to build momentum next year, driven by improved conditions in the U.S. and, to a lesser extent, Europe.

"Growth in emerging markets–while still relatively strong–looks more vulnerable, reflecting a combination of structural challenges in the [Brazil, Russia, India, China, and South Africa markets] and fallout from geo-political situations in both Eastern Europe and the Middle East,” the financial-services company said. “Meanwhile, the tightening of monetary policy expected in the U.S. and UK expected over the next year has the potential to unsettle global financial markets, though increases in interest rates will be gradual and well-signaled. Monetary policy in the Eurozone, by contrast, is likely to remain loose."

 

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